From the Professional Staff

Leveraging a Budget to Build a Foundation-Grantee Partnership

By Steven Green on May 31st, 2013

In many ways, a grantmaking relationship begins with a shared understanding of a budget. This is not to say that grant financials supersede programmatic goals; rather, they are essentially complementary: A comprehensive financial report accompanied by a detailed budget narrative sets a roadmap for an organization’s programmatic priorities.

When a funder and grantee come together for budget reviews, it is an opportunity for them to explore how grantee management of the grant award can support efficient implementation of the grant. They can think smarter about how to achieve their shared goals. Conversations about timing of grant payments and reporting on grant implementation, for the Jim Joseph Foundation, are part of a relational funder-grantee dynamic[1]. Four key factors, all related to financial practices, can provide the framework for a substantive Foundation-grantee partnership.

1. Pay prospectively. By the time we award a grant, the Foundation has undertaken an extensive review of an organization’s mission alignment, fiscal health, leadership, strategy and prior accomplishments. Additionally, the grantee has already invested significant resources in getting beyond the application process.

Admittedly – and as grantees would attest – we request thorough documentation. From this information, we gain an understanding of the stages of a grantee’s initiative and can anticipate when payments will be needed. Often times, we agree to a payment schedule that provides some funding in advance of when expenditures will occur. This helps an initiative’s growth and progression, and it provides a sense of security for the grantee. And making selected grant payments prior to the use of funding also allows both parties to focus more on the actual initiative and less on the dollars. (Incidentally, we have a similar relationship with researchers, consultants, and independent evaluators. While we reserve a small payment for the end of each contract, a majority of the contract awarded is paid prospectively. Reconciliation based on wages and expenses occurs at the end of the contract when a final payment is calculated)

2. Specify budget requirements and be willing to adapt. Along with specifying programmatic benchmarks, it is imperative to be clear about which financial reporting is necessary. We want to avoid requesting documents that do not provide any critical information about the success of a grant or the financial wellbeing of an organization. Our goal is to gain a full understanding of the grantee – how it has been operating and how it seeks to operate in the future. Over the past year, we standardized the major questions that we ask in each internal systematic budget review of our major grants. We use these questions to help us formalize the items that we request as fiscal deliverables for our major grants.

Are there any red flags in the most recent audited financials including a citation in the management letter?

Is there a single/multi-year deficit in the program or organizational budget? If so, do we know why?

Are Foundation payments consistent with actual budgeted payments?

Are actual revenues and expenses consistent through different iterations of the budget?

Are personnel costs appropriate? What are the FTEs?

Is the overhead percentage constant across years?

Is carryover accounted for and consistent between years?

Is there a noticeable variance (>10%) for any line item and do we know why?

What percentage of the program / organizational budget does the Foundation pay?

Does the organization have adequate cash flow / reserves?

Has the grantee met its recruiting numbers? (if applicable)

Has the grantee met its fundraising requirements? (if applicable)

Is tuition change explained? (if applicable)

Interacting with each grantee on an individual basis is paramount to developing a partnership. We understand that each organization is unique. Rather than requiring all grantees to conform to a specific percentage basis for overhead, we try to understand what the overhead relates to in each circumstance and ensure that the agreed upon percentage is consistent across the years of the grant. Additionally, if we discover that expenses or revenues vary from the original budget projections, we are open to adjusting payments either higher or lower, accordingly. We have even had cases where a major grant strategy of the organization changed midway through the grant period, and we were able to adapt the grant.

Our goal is to move forward with grantees to achieve shared goals. Before issuing payments, we make sure to understand the reason behind a budgetary choice and confirm that the budgets come to the Foundation with the grantee’s formal Board approval.

3. Schedule budget-related deliverables and payments collaboratively. The Foundation coordinates payments to grantees based on when deliverables are submitted and approved. We have preliminary conversations with grantees regarding when to submit budgets and related information (including audited financials, program and organizational budgets and actuals, and cash flow documentation) to lessen redundant production of materials. Typically, scheduling of cash payments is based around the organization’s board meetings, fiscal and program/academic years, and annual audits. It makes little sense to have a budget for an academic program operate on a calendar year simply because that was when a foundation issued the grant. This would create an additional burden for the organization and more opportunity for mistakes in the budgetary process. Instead, by having this dialogue, we limit the need for an organization to create new budgets for the sole purpose of satisfying our grant reporting, in favor of those that are already created for the organization’s Board of Directors or other donors. As recommended by Project Streamline, “Align grant schedules with the grantee’s timing, not the funder’s.[2]”

4. Maintain communication with other funders. Funder communication is two-fold and centers around both reporting and funding. Whether or not a grant began through co-funding, coordinating an organization’s reporting among multiple funders can be timesaving, informative, and productive. In addition to the fact that foundation professionals can learn from each other about best practices for monitoring financials (and program achievements), organizations reduce their work when funders receive the same reports and communicate with each other. While we never share an organization’s proprietary financial information with other funders, we encourage grantees that are co-funded to adopt more collaborative reporting practices. Secondly, just as a foundation should communicate concerns about an organization's performance, it also is important for a foundation/funder to highlight the organizations that are good fiscal and operational stewards. While the grantmaking process is an opportunity to support a cause, it also is an opportunity to showcase the grantee or specific initiative to other foundations to open up additional funding opportunities.

Budgets are more than just pro forma documents. They provide a roadmap for both the funder and grantee that depict the interaction of expenses, revenues, and project activities. When leveraged appropriately, budgets can be the “jumping off” points for a productive partnership for both parties - crystallizing goals and leading to long-term, positive outcomes.

The Jim Joseph Foundation invests in promising Jewish education grant initiatives. We partner with effective organizations that seek to inspire young people to discover the joy of living vibrant Jewish lives.